Chicken and Real Estate – a timeless post…

Somehow, I was drawn to this post that I put up in mid-2006. My recent experiences with the self-proclaimed web-based panaceas made me yearn to read it and see if my feelings had changed. Guess what? I stand behind every word of it, like the day I wrote it!

CHICKEN AND REAL ESTATE…

..are not videotapes and airline tickets.

(note: this is a repost of this blog’s 9/2/06 entry Sellsius Zillow Poll Results. Feedback was that the point needed to stand alone. md)

Zillow. Brilliant marketing concept, for sure. We’re all running around saying, yelling, screaming the “Z” word, while the founders go to every realtor trade association meeting they can get a plane ticket to (on-line tickets, through Expedia.com, of course) and sit up on the dais, with Cheshire cat grins, talking about how they created the fabulous Expedia.com and how it changed the travel agency business forever (read: put thousands of travel agents out of business).

Their posture is uncannily similar to that of a group of men I met back in 1992 when they bought a little-known company called Boston Chicken. I was Director of Operations for Boston Chicken at the time, a concept of fresh food served in a charcuterie style to raging fans in the Boston area. The concept was founded by Kip Kolow and Arthur Cores, two “nice boys” from Newtonville, Mass. about 10 years earlier. The foundation of the concept was the fresh and delicious food, prepared with the finest, freshest ingredients, delivered daily to our stores.

This group was still riding high on their success with the Blockbuster Video chain. They had become early franchisees of Blockbuster and grew at a faster pace than the franchisor, eventually taking the founders over and making lots of money in the process. They figured they had the Midas touch (and so did their backers) and could do the same thing with Boston Chicken that they did with Blockbuster – grow it fast and reap the rewards.

In order to do this, they developed plans to buy the entire crop of butternut squash grown in the midwest, put the fresh product into leased freezers, have it processed, and have it sent frozen to the stores by a distributor. They planned similar mass buys, storage and delivery schemes with potatoes (if you ever had the mashed potatoes from one of the original Boston Chickens, you understand what a blasphemous act this would have been). The same plan existed for all fruits and vegetables, and even – brace yourself – chickens! After all, they needed to buy in bulk and get the product cost down in order to be more profitable for their company stores and to attract new franchisees. Gee whiz, when the video rental business slowed down, they could even put Boston Chicken stores in the Blockbuster locations and train the franchisees how to operate them. How brilliant!!! How enterprising!!!

These guys did know the video business and they sure knew how to create sizzle (use of “z” merely necessary, not intentional), but they didn’t understand the food business. I remember talking with one of the head honchos in our offices overlooking the Harvard football stadium the day after they bought the company. He asked me what I thought the growth potential was of the company, and I told him what we had found in our concept development research: “probably 250-300 stores in upscale shopping centers and commercial districts around the country, owned and operated by franchisees who are committed to quality, freshness and service”. These were the hallmarks of the Boston Chicken brand that Arthur and Kip had worked for years to create and we worked diligently to preserve, staying true to the concept even as we grew to 45 stores throughout the northeast.

He told me that I “wasn’t thinking big enough”. He put his foot up on the arm of my chair and, while scratching his nether-regions, told me they would become the “McDonalds of chicken!”. He went on raving about how he and his “boys” (completely different meaning from the earlier use of the term) had built up “fifteen hun’red Blockbuster stores” and had changed the world forever. “Your success with the Blockbuster concept has been phenomenal,” I said. “I think it’s important, however, to keep in mind that people have a different standard for what they put in their mouths and feed to their families than the standard they have for what they put in their VCRs”.

Well, the rest is history. The Boston Chicken name was changed to Boston Market, the group sizzled through a much-heralded public offering, the stock sky-rocketed, the stock plummeted, then they went bankrupt. A March 13, 2002 article in the WSJ drew a comparison between Boston Market and Enron.

I knew I recognized the cockiness I saw in the Zillow founders when I attended a presentation of theirs hosted by Brad Inman in New York this past February. It somewhat irked me and made the hair on the back of my neck stand at attention. I think I’ve figured out why.

They (and their backers) figure they have the Midas touch, too. They figure they can do the same thing with homes that they did with airline tickets – grow the business fast and reap the rewards.

In order to do this, they are developing a website that they claim will empower the consumer to make buying and selling decisions for homes on their own. They take raw numbers from the municipal records of villages, towns, and cities that they know nothing about and probably have never visited, and, using their own witchcraft formula, assign values to our homes that they arrogantly expect us to believe to be accurate and on which we will base million-dollar decisions.

Currently, the information Zillow provides is grossly inaccurate in many markets. Here in the Hamptons, their Zestimates differ from my professional valuations between 30%-100% on many properties (you read it correctly – up to 100% off-base). I have seen Zillow value a property at $4 million that has comps to support a value of over $8 million. The sad thing is that there are buyers and sellers making decisions based upon this information (see Seller Gets “Zillowed” ). I can see it now: con artists knocking on elderly folks’ doors, using Zillow Zestimates to convince them to sell their homes for much less than they’re really worth.

It will take a number of lawsuits or perhaps even a class action suit against Zillow before they put the appropriate disclaimers on their site. Fact is, NO ONE should be making a buy or sell decision based solely on Zillow information. Professional advice is highly recommended.

If asked, what I would say to them would be: “Your success with the Expedia.com concept has been phenomenal. I think it’s important, however, to keep in mind that people have a different standard for making what will most likely be the largest purchase in their lives – their home – than the one they have for buying an airline ticket.”

My prediction is that, despite the current sizzle that has been created, Zillow will be a Zubble, a Zlip in Zistory. Unless, of course, they figure out how to provide accurate information and take responsibility for advising people how to use it in proper context, at which point it just might become a useful tool to consumers and brokers alike.

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10 comments

I have too many experiences similar to yours at Boston Cock of the Block. It amazes me how people can attribute forces outside of themselves to their doing. One thing Zillow seems to do right is buzz, they have everyone talking and looking at them.

I find it interesting that real estate agents are in a panic over Zillow, Trulia and the like – and yet, they post their listings there and then buy ads there.

No-one should be making a buy/sell decision based on their Zestimate alone — we’re agreed on that.

Since you wrote this post, quite a bit has changed on Zillow.com …
1) Homeowners can now update their home’s facts and publish their own corrected estimates.
2) Realtors can post their listings (with photo’s) on Zillow — it’s free,
3) Owners can post a Make Me Move price or post their home for sale — also free.
4) Realtors can now measure consumer interest in their listings using the page counters on home detail pages on Zillow.
5) Almost 60K listings have been posted to the site — 30K homes have make me move prices on them and visitors to the site have increased in recent months to predictably exceed 4M visitors / month.

Does the benefit of this hindsight change your analysis or your predictions any?

John —
That shouldn’t surprise you. Why wouldn’t an agent post their listings online (for free) if it helped to sell houses? The best quote I’ve heard on this topic reads something like; “agents won’t loose their jobs to technology, they will loose their jobs to other agents who embrace technology”.

Regarding Zillow and it’s “evolution”; I can appreciate some of the attempts that the company has made to add features for homeowners and draw in agents, but the bottom line for MY market remains that the information being put out is incredibly off base, by huge amounts in many instances.

Knowing that and continuing to make that information available is irresponsible and potentially damaging to peoples financial lives, especially in a market this volitle.

I would have much more respect for Zillow if it were to identify markets in which it’s estimates were off greater than a certain percent (say 5-10%) and then hold off providing estimates until it could be figured out why and corrected. Where is the ethical commitment to providing a good, true and accurate product? Where is the pride in being dependable? Is it just that I’m a boomer and not and xer that I don’t get that it’s ok to put out garbage in an unapologetic way? I would be embarassed (and run out of the real estate business) if I gave a Competitive Market Analysis on a property, suggesting it’s value at $8,000,000 and then seeing it listed two weeks later for $14,000,000.

Some properties, and , perhaps even some markets, are unzillowable. This is one of them. md

What is the difference between zillow and a real estate agent giving a home an inflated value? The real estate agent is committing fraud, obtaining the listing contract under false information. Convincing the homeowner to spent money on professionally staging the home and than strong-arming to lower the price that the real estate agent recommended to the seller. At worst, zillow is another way sellers have to determine the price of their home without the agent’s self interest coming to bear. The national association of realtors have omitted that over 50% of today’s agents have less than 3 years experience. Now these same agents that are being trained in “ Short Sales “ to misguide the same now defaulted homeowners that they sold the homes to in the first place with mortgage loans that the real estate agents didn’t understand or care if they effect their clients in a negative fashion. Real estate agents should not be critical of technology, blaming the zillow’s for miss information about home prices. Real estate agents should be embracing in telling the truth about how pricing is determined upon sales. Real estate agents have always practiced in over-pricing homes just to get the listings. Combined with over exaggerated marketing claims in being the “Top Producer “ for the neighborhood, city, company or even the world naturally the homeowner is convince in giving the giving the listing to this lying agent. Homeowner would be better served in having independent appraisers recommending pricing that would be certified in being valid instead of having a real estate agent present a “ Cooked “ CMA to convince a equally unrealistic home owner. The technology such as zillow will become better, as well as the lying done by some real estate agents. When real estate agents place more attention to stopping the lying and deception in the business, the technology will always be good.

Despite the overwhelming evidence of the gross inaccuracy of Zestimates, Zillow carries on smiling brazenly, unaccountable, unapologetic and uncaring, about the damage they do. Meanwhile they add other features to distract from and dilute the focus from those zany zestimates. And I’ve never understood Zillows stance (once they began to back pedal a bit) on using their bogus zestimates as a starting point. How and since when, does providing inaccurate information contribute to making a good decision, regardless of which stage in your decision making that you take this inaccurate information into account.

“Let’s start with some little known facts. Realtors (agents who are members of the National Association of Realtors) list and sell homes within 99 percent accuracy, according to a recent report by the NAR.”

I have no problem with Zillow’s “zestimates.” They are what they are, and like any estimate can be way wrong. Zillow acknowledges this and says it right out front. I can understand that many people don’t understand how these numbers are derived, and therefore don’t understand the inherent inaccuracies in any such process.

But anyone who says that realtors (or anyone) list homes within 99% percent accuracy is someone I have a problem with. They are the ones who intentionally or unintentionally are committing a fraud on the public.

Herb,
I have a bit of a problem with the “99 percent” claim myself.
But, where does Zillow say “right out front” that they can be “way wrong”?
Also, “fraud” is a pretty strong word. If you’re running into those type of agents, call me next time you need assistance and I’ll get you intouch with a reputable agent – nearly anywhere. md

Well, “fraud” may be a strong word and, for sure, there are different types and levels of fraud, but I think you get the point.

As for the “way wrong” issue, Zillow can do something that you, or any realtor can’t, which is to give literally millions of estimates at the touch of a button that are, on balance, going to be within an acceptable range of error; on the other hand, you can do something that Zillow can’t, which is to bring local knowledge. There are lots of ignorant and uneducated people out there, and just because they might be inclined to give more credence to a Zillow estimate doesn’t damn what Zillow is trying to do. These types can be just as easily be misled by an unscrupulous or ignorant broker.

Real estate isn’t fungible, and features that have a particular value to one person may have little value to another. Any estimate is just that, and I think 10% is a reasonable range of error. Anyone who thinks they can value real estate more precisely is deluding themselves.

It’s funny, but I recently had an appraisal done for the purposes of a home equity loan application. There were two notable points:

1.) The appraisal used the exact same comps that Zillow uses, which tells me that either Zillow is doing something right, or the appraiser is just using Zillow as a tool.

2.) The appraisal came in about 17% below Zillow’s zany zestimate. I watch the market carefully, and I think Zillow’s zany zestimate is much closer to the mark.